Tuesday, September 30, 2008

The WSJ environmental blog report, Capping Carbon: Northeast Utilities Pay to Pollute, But Does That Matter?, says that"Six of the ten states in the scheme offered 12.5 million permits for power companies to pollute. Bidders actually wanted more than 50 million permits, a sign of serious interest among utilities in getting their hands on the permits. (And it was largely utilities that were bidding; organizers said power companies, rather than environmental groups or third-party traders, bought “most” of the allowances.)But demand wasn’t strong enough to actually make the emissions permits expensive: The auction price of $3.07 a ton was a little bit above the minimum bid price of $1.86 a ton, and just below the $4-something figures bandied about ahead of the auction. In comparison, greenhouse-gas emissions permits in the European scheme are trading at about $37. "

A firm hired by RGGI to monitor the auction reports no problems. The report includes the following:"Based on our monitoring of participant conduct in the auction, we find nomaterial evidence of collusion or manipulation by bidders. The vast majority of bids were submitted in line with competitive expectations."

It's not just early action and early decision anymore; regular college admissions can also unravel. The Chronicle of Higher Education reports (Admissions Group Moves to Stop 'Deadline Creep') that"The National Association for College Admission Counseling has a message for member institutions: Do not rush applicants into accepting offers.

On Saturday, during its annual meeting here, the association revised its professional guidelines to clarify that colleges may not solicit commitments from first-year applicants before May 1—the long-recognized notification deadline. In approving the new language, the association also affirmed that admissions offers must clearly state whether deposits submitted before May 1 are refundable.

Concerns about “deadline creep” prompted the revisions, said Ken Fox, departing chairman of Nacac’s Admissions Practices Committee. In recent years, some colleges have informed admitted students that they must accept or decline financial-aid offers before May 1, a violation of Nacac’s Statement of Principles of Good Practice. High-school counselors have also complained that some institutions pressure students by urging them to send housing deposits in March or April."

Furthermore"On Saturday, Nacac also approved a change in its guidelines that will prohibit colleges from asking "regular-decision" applicants to rank their preferred colleges in order. Previously, the association stated only that colleges should not “require” such information, and some institutions continue to include the question on application materials, with the word “optional” beside it."

Sunday, September 28, 2008

"There are about a hundred wines on the list, along with a wide range of beers and water — but the only fizzy drink in this most Gallic of French restaurants is Schweppes tonic, which was authorised, after anguished debate, to enable Lipp's British customers to enjoy gin à l'anglaise.“We allowed that in the name of entente cordiale, but we have never sold a bottle of Coca-Cola,” Mr Guittard told The Times.The only customers who asked for it were children and foreign visitors such as Bill Clinton, who dined at Lipp in 2006.The former US President wanted to wash down his cassoulet with a Coca-Cola “but we didn't give in and so he had bordeaux instead”, said Mr Guittard. "

The market for biochemists is changing: pharma and biotech beckon, the path to academic tenure is strewn with obstacles:

"A decade after 26 members of the entering class of 1991 earned their Ph.D.s from Yale's elite molecular biophysics and biochemistry program, only one holds a tenured faculty position. But is an exodus from academia a bad thing?"from And Then There Was One, Science 19 September 2008: 1622-1628.

In many parts of the world, barriers have been raised to the sale of Genetically Modified (GM) crops.

In Australia, they were legislated against, and now that legislation looks likely to be repealed.Science 19 September 2008:Vol. 321. no. 5896, p. 1629 reports:"Four years ago, the governing Labor Party in Western Australia (WA), the country's breadbasket, banned growing GM crops in the state. But after elections last week, the Liberal and National parties formed a coalition that will oust Labor--and the Liberals have promised to rescind the GM moratorium."

In England, where GM crops aren't forbidden, Prince Charles has headed the opposition:"The mass development of genetically modified crops risks causing the world's worst environmental disaster, The Prince of Wales has warned..."The Prince, in an exclusive interview with the Daily Telegraph, also expressed the fear that food would run out because of the damage being wreaked on the earth's soil by scientists' research.He accused firms of conducting a "gigantic experiment I think with nature and the whole of humanity which has gone seriously wrong"."Why else are we facing all these challenges, climate change and everything?".Relying on "gigantic corporations" for food, he said, would result in "absolute disaster".

Saturday, September 27, 2008

I call a transaction 'repugnant' if some people want to engage in it, but others don't want them to. In Saudi Arabia these often involve religious views.The NY Times report that the Turkish soap opera Noor is very popular among Saudi women, but not among clerics: Arab TV Tests Societies’ Limits With Depictions of Sex and Equality ."That divided response was apparent this month when Sheik Luhaidan, the Saudi cleric, made his comment about killing the owners of satellite TV stations that broadcast indecent material.His comments were quickly rebroadcast, and an uproar ensued. Critics across the ideological spectrum, including some hard-line Saudis, berated him as having crossed the line. Some of the television networks Sheik Luhaidan appeared to be referring to are owned, after all, by members of the Saudi royal family.Sheik Luhaidan, who is chief justice of Saudi Arabia’s highest legal authority, the Supreme Judicial Council, is said to have been surprised by all the controversy.A few days later, apparently under pressure from senior figures in the Saudi government, he appeared on state television to explain. He said he had not meant to encourage or condone the murder of station owners. Assuming other penalties do not deter them, he said, the owners should first be brought to trial and sentenced to death — and then they could be executed."

Friday, September 26, 2008

The American Association of Kidney Patients writes to the Senate, saying“As the waiting list for organs grows ever longer, it is time to allow government controlled trials of financial incentives to help increase the number of organ donors. A financial incentive is not necessarily a cash payment: for example, a donor could receive something as simple as lifelong health insurance, or families could receive funeral benefits for the deceased donors.”

The New York Sun has an article on the bill to be introduced by Senator Arlen Spector (the Organ Donation Clarification Act of 2008). The article says of the bill "It faces little opposition, and could pass when Congress returns in November or next year. "Aside from the fact that the Senate is a bit busy right now, based on my observations of repugnance and how it sometimes constrains markets, I'm guessing that the assessment of little opposition will not prove to be correct.

Tim Harford, reporting on the work of Rachel Ngai and Silvana Tenreyro of the London School of Economics, suggests it has to do with the thickness of the market.

He says "If Ngai and Tenreyro are right, then the housing market dynamic is something like this: buyers slightly prefer to buy houses in the summer, so house prices are slightly higher in the summer, so sellers prefer to put their houses on the market in the summer, and with more houses on the market, the market is thicker. That means that buyers are more likely to find the exact house they want, and so are willing to pay more; with prices higher, more sellers are attracted into the summer market, and fewer will contemplate selling in the winter. And so on. The self-reinforcing process can produce a large gap between summer and winter prices."

"An auction that determines areal price for a given security needs to requiremultiple holders of the security to competewith one another. This can be achieved if theTreasury purchases only some, not all, of anygiven security."

"Thus, a better approach would be for theTreasury to instead conduct a separate auctionfor each security and limit itself to buyingperhaps 50% of the aggregate face value. Again,the auction starts at a high price and works itsway down. If the security clears at 30 cents onthe dollar, this means that the holders valueit at 30 cents on the dollar. (If the value wereonly 15 cents, then most holders would supply100% of their securities to be purchased at 30cents, and the price would be pushed lower.)The auction then works as intended. The priceis reasonably close to value. The “winners” arethe bidders who value the asset the least andvalue liquidity the most.This auction has an important additionalbenefit. The “losers” are not left high and dry.By determining the market clearing price, theauction increases liquidity for the remaining50% of face value, as well as for related securities.The auction has effectively aggregated marketinformation about the security’s value. Thisprice information is the essential ingredientneeded to restore the secondary market formortgage backed securities."

There are lots of important market design issues being debated on-the-fly regarding the bailout of financial institutions. I am not surprised to see that repugnance seems to be playing a role. In President Bush's speech last night, for example:“The American people are angry about executive compensation, and rightly so,” he said. “No one understands pay for failure.”

Wednesday, September 24, 2008

I had an interesting email exchange today with John Mackall of the law firm Seed Mackall LLP in Santa Barbara, and he encouraged me to post it on this blog.

On Wed, 24 Sep 2008, John Mackall wrote:

> Dear Prof. Roth:>> I read about your kidney market contributions in the most recent> Harvard Magazine, and since then I have reviewed your blog.>> For several years I have speculated about several new ways to approach> litigation, which must certainly be the biggest and least organized> "market" in the country.>> I have wondered about how game theory might be applied to the> resolution of thousands of lawsuits at a time, for example. The idea> would be to select from game theory one or two methods of dispute> resolution, and then see if it would be possible to identify a set of> perhaps 1,000 lawsuits that would be particularly amenable to> resolution in that manner. For example, three party car accidents in> which four or five large automobile insurance carriers share the majority of the liability. These could be resolved much more efficiently in large groups-100 or> 1,000-rather than case by case. Cake cutting algorithms or other game> theory tools would be much easier to use in bulk.>> I have also wondered about lawsuits among Fortune 1000 companies.> There might be cases in which Company A is suing Company B for $10> million, and Company B is suing Company C for the same amount, and> Company C is suing Company A for the same amount. Simple chains like> that might be identified, in which the chain might be resolved much> more easily than any one link (lawsuit) in the chain. More complex,> non-obvious chains might also be identified. There are many> sophisticated analytical systems in math, and in finance there are> many tools, that could be applied to identify and resolve various> large groups of seemingly unrelated lawsuits, particularly if there is> some cohesion to the larger group.>> My goal is to put together an academic group that would draw on> business, law and certain hard sciences-math (such as number theory> and game theory) and statistics especially-to see if there is some way> to settle thousands of cases at once in ways that have not yet been> conceived. The first step would be to identify theoretical> approaches, and the next step would be to consider whether there are> "sets" of lawsuits that meet the theoretical requirements.>> This idea falls somewhere between grand and grandiose. I am not sure> where, exactly. If you have any interest, let me know.>> Sincerely,>> John R. Mackall> Harvard '71, Stanford Law School '73

Hi: the idea sounds interesting, but as a natural skeptic (as market designers must be) let me raise two top of the head concerns.

In an insurance pool, while the insurance companies have many cases, the victims have only one, and might not be in a position to accept a compromise that was good on average if it didn't work for them.

The pool of corporate lawsuits sounds much more likely not to have that problem. But (like patent pools), if there's going to be a pool of lawsuits, maybe I should file some extra lawsuits, i.e. there could be bad incentives that would change the pool of lawsuits, even if you had a good way of litigating an existing pool of lawsuits.

So...I think it's an interesting idea, and I'm happy to hear how it develops, but those are my concerns on first blush.

Both points have occurred to me. One I can solve. In the insurance cases, I specify a set of multiple defendant cases for a reason: the defendants would resolve the liability among themselves, and leave the plaintiff out of the equation. The resolution would not be of the plaintiff's lawsuit itself, but of the secondary question as to how the damages are to be allocated. They can then present a united defense.

Your second point raises the possibility of gaming the system by filing lawsuits to score points in the game. Yes, this possibility exists, and I think it would be likely in some degree. I don't think it would swamp the overall benefits however.

I would be delighted if you would simply mull this over. Perhaps in the future you might have a student or two that would be interested, and if so, I would be delighted to help in any way.

"UNITED NATIONS, Sept. 24 -- The world's largest philanthropy on Wednesday announced an initiative to transform the way the U.N. World Food Program purchases food by helping poor, small-scale farmers in undernourished countries of Africa and Latin America sell their surplus crops at competitive prices.The Purchase for Progress program is designed to help combat hunger and poverty in the developing world by giving farmers, many of them women with little or no access to commercial markets, opportunities to reach reliable buyers, including the World Food Program. In a five-year pilot period, the $76 million program hopes to increase the incomes of 350,000 such farmers in 21 countries, including 15 in sub-Saharan Africa."

Sunday, September 21, 2008

The NY Times reports that the current credit crunch means that real estate buyers in Manhattan, especially those who have to be approved by a co-op board, are often having to sell their previous home before they meet the credit requirements to buy. For Buyers, Many Roadblocks

Friday, September 19, 2008

The NY Times has a story called The Year of the Parking Space that touches on many parking related developments in NY. The most interesting part concerns congestion: lots of resources are spent trying to find parking spots.

"Every driving trip begins and ends with parking. But the demand for curbside parking in New York City far exceeds the supply. This mismatch is greatly compounded by the fact that curbside parking is free or priced far below garage rates, which are 10-15 times more expensive .The low price of curbside parking unleashes a torrent of bargain-hunting drivers. Those who find spaces stay longer to make the most of their find. And when all spaces at the curb are occupied, other cars looking for parking circle in traffic for an elusive space. The saturation of curbside parking is a direct cause of air pollution, illegal parking and traffic congestion, all of which exact high costs on New York City’s environment, economy, health and quality of life."

Thursday, September 18, 2008

Lots of markets (including entry-level labor markets) have more uniform prices than economists customarily suppose. Tickets for sporting events, for example, typically cost the same regardless of the quality of the opponents. (Teams have often been afraid of alienating fans, who it was thought might find it repugnant to pay more for more exciting games.) The Los Angeles Lakers propose to change that: Lakers will have higher ticket prices for seven games in 2008-09.

Hat tip to Steve Leider (who will be on the new economist labor market this year:)

NASA proposes Delay banking for managing air traffic. The idea is that an airline whose flight was delayed by air traffic controllers would gain some 'delay points' that could be used to bid for early landing in (other) congested situations.

For some reason, NASA has taken out a patent on this idea. (The patent system is itself meant to be a solution to a certain kind of market design problem. The granting of patents to these kinds of "business practices" raises some questions about that solution. )

Mayor Janet Cribbes slammed the promotion in the local press."It fuels the fire for irresponsible drinking, irresponsible behaviour and puts young women at risk and makes them more vulnerable to sexual assault," she said."I'd thought they would have learnt their lesson from the dwarf episode. We'll be paying them a visit soon, I'd say."

I maintain a web-based Bibliography of matching and market design, and it is getting harder to keep it up to date as the field grows. (This is a good problem to have. If you have some papers that should be there, please send me a list in a form I can cut and paste:) I just added/updated the following papers by Fuhito Kojima:

The Church of England (in the person of the Rev Dr Malcolm Brown, their director of Mission and Public Affairs) has published a belated apology to Charles Darwin, called Good religion needs good science. For those of us worried about the sometimes contentious relation between economics and religion, in connection with repugnant transactions, for example, it is worth reading.

Dr Brown notes "It is hard to avoid the thought that the reaction against Darwin was largely based on what we would now call the 'yuk factor' (an emotional not an intellectual response) when he proposed a lineage from apes to humans."

His concluding paragraph:"Charles Darwin: 200 years from your birth, the Church of England owes you an apology for misunderstanding you and, by getting our first reaction wrong, encouraging others to misunderstand you still. We try to practice the old virtues of 'faith seeking understanding' and hope that makes some amends. But the struggle for your reputation is not over yet, and the problem is not just your religious opponents but those who falsely claim you in support of their own interests. Good religion needs to work constructively with good science – and I dare to suggest that the opposite may be true as well."

Canada is taking steps to promote kidney exchange by establishing a database of patient-donor pairs.

And various Canadian provinces (BC in 2006 and Ontario and Manitoba in 2008) have initiated programs to reimburse out of pocket expenses of live organ donors,and some very limited lost income reimbursement. While the laws that prohibit organ sales often explicitly allow reimbursement of expenses, jurisdictions have been slow to authorize reimbursement, for fear of starting down the slippery slope towards payment for organs.

Tuesday, September 16, 2008

"In protest of what he says are textbooks’ intolerably high prices — and the dumbing down of their content to appeal to the widest possible market — Professor McAfee has put his introductory economics textbook online free. ...“This market is not working very well — except for the shareholders in the textbook publishers,” he said. “We have lots of knowledge, but we are not getting it out.”

Monday, September 15, 2008

A Singapore businessman sentenced for attempting to buy a kidney from a villager in Indonesia has highlighted the shortage of kidneys available for transplants and has fueled a national debate on the legalization of organ trade.

Repugnant transactions in Europe:"In his homily, the pope said the ill should pray to find ''the grace to accept, without fear or bitterness, to leave this world at the hour chosen by God.'' The Vatican vehemently maintains that life must continue to its natural end.The message has special resonance in Europe. Belgium and the Netherlands have legalized euthanasia, and Switzerland allows counselors or physicians to prepare a lethal dose, though patients must take it on their own."

Sunday, September 14, 2008

Calling a matchmaking site a studbook might be too blunt for most dating sites. But zookeepers need a thick market to find the right matches: see the NY Times on Seeking Mates for Furred and Clawed . (NB to matchmaking entrepreneurs, it's too late to reserve the URL studbook.com, that's already an active site.)

It may seem strange for an entrepreneur to call for more government regulation, but when it comes to energy, that is what Mandelstam is doing. “As a student of history, you go back to a guy named Thomas Edison, and his first power plant, and the thing one has to point out is that the government and regulators have been integrally enmeshed in the energy business ever since it began on Pearl Street in 1882.” He points to Europe as an exemplar: “We were the world leader in wind. Europe overtook us quite a while ago and continues to beat us all the time because they got the public policy right.” Wise regulation, according to Mandelstam, and a thoughtful debate about energy policy is the best way to correct that. “Let’s line up all the subsidies of coal and nuclear power and oil and natural gas and wind — and let’s have a debate,” Mandelstam urges. “That hasn’t happened in the last eight years, and now, frankly, we’re paying the price for it.”

One of the markets most changed by the rise of the internet is the market for used books. Back in the day, people visiting Cambridge MA, for example, might put aside some time to browse the used book stores. The idea was that you probably had a mental list of out of print books you were looking for. No more. If you want an out of print book, you can search online and buy it from a distant seller. The NY Times book review has an essay today, Attack of the Megalisters, nostalgic for the old days.

Thursday, September 11, 2008

The NY Times has a story on airline safety, Panel Backs Letting Airlines Confess Errors Unpunished . Airlines and doctors have very different practices about reporting errors: there's more public reporting of "near misses" and other events in the domain of air traffic control, but docs have morbidity conferences in which they talk among themselves about bad outcomes.

Peter Coles and I are starting this blog in connection with our Fall 2008 Market Design course at Harvard. It is meant as a place to post news stories related to market design (including stories related to repugnant markets), and to think about market design ideas generally if briefly. For students, it is meant not to replace but to supplement the course page (where the class handouts will still be found). It also won't replace my market design page, although there will likely be links back and forth.

We are new bloggers, so please bear with us while we learn what this is good for. Our initial plan is to post only sporadically.